Audit and Assurance · Corporate governance

Non-Executive Directors and Board Committees in ACCA Audit and Assurance

Updated 11 October 2026 · Fact-checked

Non-executive directors (NEDs) sit on the board but do not run the business day to day. They challenge executives, bring outside judgement and staff the audit, remuneration and nomination committees. Their value depends on independence, so exam answers must link each role or committee to a specific governance risk.

Understand Non-Executive Directors and Board Committees

A company's board has executive directors, who manage the business daily, and non-executive directors (NEDs), who do not. NEDs are part-time and are not employees. Their job is to oversee, not to manage.

Why do they matter? Executives may act in their own interest, for example by setting their own pay or hiding bad news. This is the agency problem. NEDs bring an independent view and can challenge the executives on behalf of shareholders.

NEDs usually perform four roles:

Strategy: challenge and help develop the strategy proposed by executives.
Scrutiny: monitor management performance against agreed goals.
Risk: check that financial information is accurate and that controls and risk management are sound.
People: set executive pay, and take part in appointing and removing directors.

The last two roles are mostly done through board committees. The audit committee oversees financial reporting, internal control, internal audit and the external auditor. The remuneration committee sets executive pay. The nomination committee leads the board appointment process. Codes of best practice generally expect these committees to be made up wholly or mainly of independent NEDs. Check the code named in the question for exact requirements.

NEDs only help if they are truly independent. Independence can be weakened by past employment with the company, close personal or business ties with executives, share options or large shareholdings, long tenure, or pay that depends on company performance. Independence can be improved by appointing NEDs through the nomination committee, fixed and limited terms, fixed fees not linked to performance, and access to independent advice and information.

Key rules to remember

Four NED roles: Strategy + Scrutiny + Risk + People; A quick memory frame for any question asking for the role of NEDs.
Audit committee functions: Reporting + Controls + Internal audit + External audit; Review financial statements and judgements; review internal control and risk management; oversee internal audit; recommend auditor appointment, fees and independence, and discuss audit findings.
Remuneration committee function: Set executive pay; no director decides own pay; Pay should attract and retain executives without overpaying, and be linked to performance and long-term success.
Nomination committee function: Evaluate board; identify skills gaps; recommend appointments; plan succession; Aims for a formal, transparent appointment process rather than the chair or CEO choosing alone.
Independence improvers: Fixed terms + fixed fees + independent selection + access to advice; Also avoid share options and past employment or close links with the company.

How to solve Non-Executive Directors and Board Committees questions

Use this method for any question on NEDs or committees, whether it is an objective test or a written requirement.

1Read the requirement verb: describe the role, explain a benefit or drawback, or suggest how to improve independence.
2Identify which body is involved: the NEDs generally, or the audit, remuneration or nomination committee.
3Pick the scenario facts that matter, such as a former employee as NED, a CEO setting pay or no audit committee.
4Match each fact to a governance risk, for example weak challenge, self-interest or reporting bias.
5Write each point in the pattern: fact, why it is a problem or benefit, recommendation.
6Make recommendations specific, such as a fixed three-year term or a committee of independent NEDs only.
7Keep the number of points equal to the marks available and use short headed paragraphs.

Quickest way: Committee match-up

When to use it: Use this in objective test questions that ask which committee handles a task, or which NED is not independent.

Link the task to the committee: financial reporting, controls, auditors means audit; pay means remuneration; appointments means nomination.
For independence, scan each NED described for a past job, family tie, share options, long service or performance-linked pay.
Pick the option that fits exactly; remove options that describe executives' work instead of oversight.
If two options look right, choose the one that addresses the stated risk in the scenario.

Common mistakes in Non-Executive Directors and Board Committees

Saying NEDs manage the company day to day.
Students confuse them with executive directors because both sit on the board.
Fix: Describe NEDs as overseeing and challenging. Executives manage and NEDs scrutinise.
Listing committee duties without linking them to the scenario.
Students recall textbook lists and stop there.
Fix: Use the scenario facts and say why the duty matters, for example the audit committee reduces reliance on the finance director's view.
Confusing audit committee and remuneration committee tasks.
Both are board committees and are taught together.
Fix: Remember: audit means numbers and controls; remuneration means executive pay; nomination means who joins the board.
Treating a NED as independent when they have clear links to the company.
The title 'non-executive' is assumed to mean independent.
Fix: Check for former employment, family ties, share options, long tenure or performance-related pay before accepting independence.
Giving only benefits or only drawbacks of NEDs.
Students assume NEDs are simply good governance.
Fix: Balance both sides: drawbacks include limited time and knowledge, reliance on executives for information, and extra cost.
Suggesting vague improvements such as 'make them more independent'.
Students run out of specific ideas under time pressure.
Fix: Name concrete measures: fixed terms, fixed fees, selection by the nomination committee, and access to independent advice.

Worked examples

Example 1

A listed company's audit committee has three members. One is a former finance director who left the company two years ago. Another receives share options as part of her NED fee. The third has no other links to the company. Explain the independence concerns and suggest how the company could improve independence.

Show the solution

Identify the first concern: the former finance director previously worked in the company, so may defend past accounting decisions and lacks objectivity.
Identify the second concern: share options link her reward to share price, which may bias her towards favourable reporting.
Note the third member appears independent.
Conclude that only one of three members is clearly independent, which weakens the committee's ability to challenge management.
Recommend replacing the former finance director with an independent NED, and paying NEDs a fixed fee without options.
Recommend that the nomination committee runs a formal selection process, with fixed terms and access to independent advice.

Answer: Two of the three audit committee members have independence concerns: the former finance director because of past employment, and the NED with share options because her pay depends on the share price. The company should appoint independent NEDs, use fixed fees without options, select members formally through the nomination committee and set fixed terms.

Example 2

Which of the following is a function of the remuneration committee? (A) Recommending the appointment of the external auditor (B) Setting the pay of executive directors (C) Reviewing succession plans for the board (D) Overseeing the internal audit function

Show the solution

Match the task to the committee: pay means remuneration committee.
Option A is the audit committee (with the board and shareholders).
Option C is the nomination committee.
Option D is the audit committee.
Option B is the only one about executive pay.

Answer: B. The remuneration committee sets executive directors' pay.

Exam tips

Always tie committee duties to the scenario. A bare list rarely earns full marks in a written answer.
For independence questions, scan the scenario for past employment, family links, share options, long tenure and performance-based pay.
When asked for benefits and drawbacks, give both sides, and make drawbacks specific such as limited time and reliance on executives for information.
In objective tests, match the task to the committee first and eliminate options that describe executive management work.
Say that codes encourage independent NEDs on committees, but do not quote exact numbers or thresholds unless the question gives them.

Non-Executive Directors and Board Committees in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Non-Executive Directors and Board Committees: frequently asked questions

What is the role of non-executive directors?

NEDs oversee and challenge the executive directors. They contribute to strategy, scrutinise performance, check controls and risk management, and take part in setting pay and making board appointments through committees.

What does an audit committee do?

It oversees financial reporting, internal control and risk management, the internal audit function and the relationship with the external auditor. It usually recommends the auditor's appointment and fees and reviews the auditor's independence.

How can the independence of NEDs be improved?

Use a formal selection process through the nomination committee, fixed and limited terms, fixed fees without share options or performance pay, and independent advice. Avoid appointing people with past employment or close links to the company.

What are the drawbacks of using NEDs?

They work part-time, may lack detailed knowledge of the business and depend on executives for information. They add cost, and if they are not truly independent they may fail to challenge management.